On November 29, the Vietnamese parliament approved a surtax on multinational companies, which will increase the effective tax rate for companies to 15% from January 2024 to combat corporate tax avoidance, with specific incentives to be developed later.。

The tax increase is in line with a global agreement that will bring Vietnam hundreds of millions of dollars in additional revenue each year.。However, experts said the country should improve its logistics infrastructure and administrative procedures to remain attractive to foreign businesses.。

Vietnam had planned to combine the tax increase with initiatives to compensate some of the large foreign investors affected, such as Samsung Electronics and Intel, but the final outcome has not yet been announced.。

As a regional manufacturing hub with relatively low labor costs, Vietnam has attracted foreign investment in electronics, apparel and other industries, a trend that has become increasingly evident in recent years as global companies move production out of China.。Multinational companies create a lot of jobs and contribute to the development of Vietnamese industry。

Vietnam has been offering tax incentives to multinational companies to attract capital.。Although the Vietnamese government's official corporate income tax is 20 per cent, it also provides tax breaks for foreign investors, resulting in an effective tax rate of as low as 5 per cent, plus a long zero-tax period.。In some cases, the tax rate can even be less than 3%.。

Under the initiative of the Organisation for Economic Co-operation and Development (OECD), from 2024, the government will collect an additional tax based on the difference between the effective tax rate and the minimum tax rate.。Under the global agreement, starting next year, companies that pay less than 15 percent in low-tax jurisdictions will be subject to additional taxes in those jurisdictions or their home countries.。

According to the 2022 corporate income tax data, the tax costs of about 120 foreign companies in Vietnam will increase sharply under the new tax rate.。It is estimated that each year will produce 14.6 trillion VND (about 6.$01 billion) in additional tax revenue。

A number of high-tech companies, including Samsung Electronics, LG, Foxconn, Panasonic, Pegatron and Intel, are expected to be affected by the tax increase.。Panasonic said it had no information to disclose, while other companies did not comment.。

Independent economic expert Anh Pham said: "Imposing the lowest tax in the world will help boost budget revenues.。However, it remains to be seen whether this will hinder worker income growth.。"

He said that raising the tax rate can improve Vietnam's competitiveness to some extent, such as using the new tax revenue to improve infrastructure such as logistics, improve the quality of the labor force, and simplify administrative procedures to attract higher-quality foreign investment.。

On the other hand, in order to mitigate the impact of corporate tax increases, the Vietnamese government has been discussing measures such as the establishment of non-tariff zones, land subsidies, infrastructure improvements in industrial and export processing zones, and indirect tax exemptions.。

According to HSBC research, foreign direct investment is the backbone of Vietnam's economic growth, accounting for 4% -6% of its GDP, and to date, total foreign direct investment has exceeded $450 billion.。

Vo Dinh Tri, an associate professor at IPAG Business School in Vietnam, said: "Some multinational companies may ask for additional incentives after the new tax rate is introduced, but Vietnam needs to prove that the overall benefits of local investment are still more advantageous compared to other countries in Southeast Asia, which is why these companies initially chose Vietnam.。"

Rob Medd, director of Muddy Waters Asia, an investment advisory firm, believes it is important to maintain a balance between foreign investment and taxation。"The right thing to do is to make sure that the treasury has enough money while attracting foreign direct investment," he said.。